Five Common but INCORRECT myths about accounts and tax

1. I’m only earning a small amount from my business so I don’t need to tell the tax man

Subject to the considerations of the Trading Allowance, all business income regardless of how small must be declared in your accounts and on a tax return even if you end up making a loss (income – costs = profit) and / or there is no tax to pay.

2. I’ve spent all the money I’ve made on stock so I’ve no profit and don’t need to pay tax

As accounts are prepared on an accruals basis (a system of recording income and costs as they occur rather than when the income is received or the costs are paid for) this is incorrect. The accruals basis is a complex concept of accounting and confuses many although it is essential to follow this.

3. I can put all of my household costs through the accounts

You can claim some costs for the use of your home as your office or for other business purposes such as storing stock. There are rules to follow which are different if you operate as a limited company or as a sole trader. However none of the rules allow you to claim all of your household costs through your accounts.

4. I use my car for my business so I can claim all of my car costs as a business expense

If you are a sole trader you would claim the business proportion of your motor costs or, subject to certain conditions, you can claim a fixed mileage rate. If you operate as a limited company it may be advisable to claim the mileage allowance rather than pay for the car through the company as you would then incur a very large benefit in kind on your personal tax for the use of a company vehicle which means you’d be worse off.

HMRC state that everyone must take reasonable care when managing their tax affairs. They say “Every individual or business is expected to keep records that allow them to provide a complete and accurate return. HMRC also expects them to check with their agent (accountant), or HMRC, to confirm the correct position, if they are not sure.” That means HMRC expect you to know about tax and if you do not know they expect you to find out.

Tax is taxing

Always get advice from a reputable accountant if you are unsure about anything to do with your Accounts and Tax Returns.